The limitations of market-based regulation of the electronic communications sector

The European Union has recently implemented a system of regulation for the sector based on principles of competition law. The regulatory framework includes 18 markets where Regulatory Authorities should consider imposing ex ante obligations on dominant players. The paper explores the economic methodology being employed in particular to define market boundaries and concludes that the sector is too unstable for this approach to provide predictability and encourage long-term investment. In particular, emerging infrastructures and services can easily be captured while legacy networks remain subject to perpetual regulation. There are significant costs of excessive regulation and alternative approaches may be better.